Edgar Filing: TEXAS INSTRUMENTS INC

txn-10q_20160630.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2016

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___________ to ___________

Commission File Number 001-03761

TEXAS INSTRUMENTS INCORPORATED

(Exact Name of Registrant as Specified in Its Charter)




Delaware	75-0289970
(State of Incorporation)	(I.R.S. Employer Identification No.)




12500 TI Boulevard, Dallas, Texas	75243
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code 214-479-3773

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.



Large accelerated filer	x		Accelerated filer	¨
Non-accelerated filer	¨	(Do not check if a smaller reporting company)	Smaller reporting company	¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

1,003,209,756

Number of shares of Registrant’s common stock outstanding as of

July 26, 2016

TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES

PART I - FINANCIAL INFORMATION

ITEM 1. Financial Statements.

	For Three Months Ended						For Six Months Ended
Consolidated Statements of Income	June 30,						June 30,
(Millions of dollars, except share and per-share amounts)	2016			2015			2016			2015
Revenue	$	3,273		$	3,232		$	6,281		$	6,382
Cost of revenue (COR)		1,270			1,351			2,454			2,685
Gross profit		2,003			1,881			3,827			3,697
Research and development (R&D)		345			320			671			658
Selling, general and administrative (SG&A)		460			470			908			909
Acquisition charges		79			82			159			165
Restructuring charges/other		2			(1	)		4			(3	)
Operating profit		1,117			1,010			2,085			1,968
Other income (expense), net (OI&E)		6			3			10			7
Interest and debt expense		21			24			43			46
Income before income taxes		1,102			989			2,052			1,929
Provision for income taxes		323			293			605			577
Net income	$	779		$	696		$	1,447		$	1,352

Earnings per common share (EPS):
Basic	$	.77		$	.66		$	1.42		$	1.28
Diluted	$	.76		$	.65		$	1.40		$	1.26

Average shares outstanding (millions):
Basic		1,004			1,038			1,005			1,042
Diluted		1,016			1,051			1,017			1,056

Cash dividends declared per common share	$	.38		$	.34		$	.76		$	.68

As a result of accounting rule ASC 260, which requires a portion of Net income to be allocated to unvested restricted stock units (RSUs) on which we pay dividend equivalents, diluted EPS is calculated using the following:

Net income	$	779		$	696		$	1,447		$	1,352
Income allocated to RSUs		(10	)		(10	)		(19	)		(19	)
Income allocated to common stock for diluted EPS	$	769		$	686		$	1,428		$	1,333

See accompanying notes.

TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES

	For Three Months Ended					For Six Months Ended
Consolidated Statements of Comprehensive Income	June 30,					June 30,
(Millions of dollars)	2016			2015		2016			2015
Net income	$	779		$	696	$	1,447		$	1,352
Other comprehensive income (loss), net of taxes:
Net actuarial gains (losses) of defined benefit plans:
Adjustments		(18	)		—		(30	)		(10	)
Recognized within Net income		13			17		27			27
Prior service (cost) credit of defined benefit plans:
Adjustments		1			—		1			—
Recognized within Net income		(1	)		—		(2	)		1
Other comprehensive income (loss)		(5	)		17		(4	)		18
Total comprehensive income	$	774		$	713	$	1,443		$	1,370

See accompanying notes.

TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES

Consolidated Balance Sheets	June 30,			December 31,
(Millions of dollars, except share amounts)	2016			2015
Assets
Current assets:
Cash and cash equivalents	$	1,235		$	1,000
Short-term investments		1,304			2,218
Accounts receivable, net of allowances of ($20) and ($7)		1,348			1,165
Raw materials		104			109
Work in process		946			846
Finished goods		826			736
Inventories		1,876			1,691
Prepaid expenses and other current assets		926			1,000
Total current assets		6,689			7,074
Property, plant and equipment at cost		5,152			5,465
Accumulated depreciation		(2,595	)		(2,869	)
Property, plant and equipment, net		2,557			2,596
Long-term investments		224			221
Goodwill, net		4,362			4,362
Acquisition-related intangibles, net		1,424			1,583
Deferred income taxes		231			201
Capitalized software licenses, net		52			46
Overfunded retirement plans		85			85
Other assets		69			62
Total assets	$	15,693		$	16,230

Liabilities and stockholders’ equity
Current liabilities:
Current portion of long-term debt	$	637		$	1,000
Accounts payable		416			386
Accrued compensation		493			664
Income taxes payable		58			95
Accrued expenses and other liabilities		387			410
Total current liabilities		1,991			2,555
Long-term debt		2,975			3,120
Underfunded retirement plans		193			196
Deferred income taxes		40			37
Deferred credits and other liabilities		532			376
Total liabilities		5,731			6,284
Stockholders’ equity:
Preferred stock, $25 par value. Authorized – 10,000,000 shares
Participating cumulative preferred. None issued.		—			—
Common stock, $1 par value. Authorized – 2,400,000,000 shares
Shares issued – 1,740,815,939		1,741			1,741
Paid-in capital		1,681			1,629
Retained earnings		31,850			31,176
Treasury common stock at cost
Shares: June 30, 2016 – 737,467,669; December 31, 2015 – 729,547,527		(24,774	)		(24,068	)
Accumulated other comprehensive income (loss), net of taxes (AOCI)		(536	)		(532	)
Total stockholders’ equity		9,962			9,946
Total liabilities and stockholders’ equity	$	15,693		$	16,230

See accompanying notes.

TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES

	For Six Months Ended
Consolidated Statements of Cash Flows	June 30,
(Millions of dollars)	2016			2015
Cash flows from operating activities
Net income	$	1,447		$	1,352
Adjustments to Net income:
Depreciation		316			401
Amortization of acquisition-related intangibles		159			160
Amortization of capitalized software		16			26
Stock-based compensation		148			162
Gains on sales of assets		—			(3	)
Deferred income taxes		(35	)		(56	)
Increase (decrease) from changes in:
Accounts receivable		(176	)		(194	)
Inventories		(185	)		(101	)
Prepaid expenses and other current assets		35			49
Accounts payable and accrued expenses		(65	)		(142	)
Accrued compensation		(175	)		(169	)
Income taxes payable		106			(78	)
Changes in funded status of retirement plans		32			41
Other		(7	)		(19	)
Cash flows from operating activities		1,616			1,429

Cash flows from investing activities
Capital expenditures		(282	)		(248	)
Proceeds from asset sales		—			10
Purchases of short-term investments		(1,193	)		(1,254	)
Proceeds from short-term investments		2,110			1,475
Other		3			1
Cash flows from investing activities		638			(16	)

Cash flows from financing activities
Proceeds from issuance of long-term debt		499			498
Repayment of debt		(1,000	)		(250	)
Dividends paid		(765	)		(710	)
Stock repurchases		(1,157	)		(1,324	)
Proceeds from common stock transactions		325			297
Excess tax benefit from share-based payments		82			64
Other		(3	)		(3	)
Cash flows from financing activities		(2,019	)		(1,428	)

Net change in Cash and cash equivalents		235			(15	)
Cash and cash equivalents at beginning of period		1,000			1,199
Cash and cash equivalents at end of period	$	1,235		$	1,184

See accompanying notes.

TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES

Notes to financial statements

1. Description of business, including segment information

We design, make and sell semiconductors to electronics designers and manufacturers all over the world. We have two reportable segments, which are established along major categories of products as follows:

Analog – consists of the following product lines: High Volume Analog & Logic, Power Management, High Performance Analog and Silicon Valley Analog.

Embedded Processing – consists of the following product lines: Microcontrollers, Processors and Connectivity.

We report the results of our remaining business activities in Other. Other includes operating segments that do not meet the quantitative thresholds for individually reportable segments and cannot be aggregated with other operating segments. Other includes DLP® products, calculators, custom ASICs and royalties received from agreements involving license rights to our patent portfolio.

Our centralized manufacturing and support organizations, such as facilities, procurement and logistics, provide support to our operating segments, including those in Other. Costs incurred by these organizations, including depreciation, are charged to the segments on a per-unit basis. Consequently, depreciation expense is not an independently identifiable component within the segments’ results and, therefore, is not provided.

Segment information

	For Three Months Ended				For Six Months Ended
	June 30,				June 30,
	2016		2015		2016		2015
Revenue:
Analog	$	2,044	$	2,049	$	3,923	$	4,084
Embedded Processing		755		690		1,484		1,362
Other		474		493		874		936
Total revenue	$	3,273	$	3,232	$	6,281	$	6,382

Operating profit:
Analog	$	771	$	728	$	1,450	$	1,449
Embedded Processing		189		135		371		258
Other		157		147		264		261
Total operating profit	$	1,117	$	1,010	$	2,085	$	1,968

2. Basis of presentation and significant accounting policies and practices

Basis of presentation

The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (GAAP) and on the same basis as the audited financial statements included in our annual report on Form 10-K for the year ended December 31, 2015. The Consolidated Statements of Income, Comprehensive Income and Cash Flows for the periods ended June 30, 2016 and 2015, and the Consolidated Balance Sheet as of June 30, 2016, are not audited but reflect all adjustments that are of a normal recurring nature and are necessary for a fair statement of the results of the periods shown. Certain information and note disclosures normally included in annual consolidated financial statements have been omitted pursuant to the rules and regulations of the U.S. Securities and Exchange Commission. Because the consolidated interim financial statements do not include all of the information and notes required by GAAP for a complete set of financial statements, they should be read in conjunction with the audited consolidated financial statements and notes included in our annual report on Form 10-K for the year ended December 31, 2015. The results for the three- and six-month periods are not necessarily indicative of a full year’s results.

The consolidated financial statements include the accounts of all subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. All dollar amounts in the financial statements and tables in these notes, except per-share amounts, are stated in millions of U.S. dollars unless otherwise indicated.

TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES

Significant accounting policies and practices

Earnings per share (EPS)

Unvested share-based payment awards that contain non-forfeitable rights to receive dividends or dividend equivalents, such as our restricted stock units (RSUs), are considered to be participating securities and the two-class method is used for purposes of calculating EPS. Under the two-class method, a portion of Net income is allocated to these participating securities and, therefore, is excluded from the calculation of EPS allocated to common stock, as shown in the table below.

Computation and reconciliation of earnings per common share are as follows (shares in millions):

	For Three Months Ended June 30,
	2016							2015
	Net							Net
	Income			Shares		EPS		Income			Shares		EPS
Basic EPS:
Net income	$	779						$	696
Income allocated to RSUs		(10	)						(10	)
Income allocated to common stock
for basic EPS calculation	$	769			1,004	$	.77	$	686			1,038	$	.66

Adjustment for dilutive shares:
Stock-based compensation plans					12							13

Diluted EPS: